Insane persons and persons disqualified by law

In one minute

A person of unsound mind cannot make a contract while the unsoundness lasts. The test is whether he could understand the deal and judge its effect on his interests at that moment. A diagnosis alone does not decide it.

Some adults of sound mind are also barred by law, such as alien enemies and undischarged insolvents. Exams ask for section 12 and the lucid-interval rule. In real life these rules decide whether a buyer can enforce a deal with a very ill seller.

Exam focus

Frequency: No data
Usually asked as: No data

Legal provision

Section 11: a person must be of sound mind and not disqualified by any law to be competent to contract.
Section 12: a person is of sound mind if, at the time of contracting, he understands the contract and forms a rational judgment about its effect on his interests.
Section 12, paragraphs 2 and 3: a person usually of unsound mind may contract when of sound mind. A person usually of sound mind may not contract when of unsound mind.
Section 68: a person who supplies necessaries suited to the condition in life of a person incapable of contracting is reimbursed from that person's property. Illustrations (a) and (b) use a lunatic and his family.
Sections 183 and 184: a person who is not of sound mind cannot employ an agent, and cannot become an agent responsible to his principal.

Meaning and definition

The Act does not use the word "insane". It speaks of "sound mind" and "unsound mind". Section 12 gives a working test, not a medical label.

The test has two parts: capacity to understand the contract, and capacity to form a rational judgment about its effect. Both are tested at the time the contract is made.

Adults who cannot freely contractHow to read this: start at the top box and follow the lines down. Green boxes are the groups and the rule for each.

Adults with limited capacity section 11
- Unsound mind section 12
  - Usually unsound, sometimes soundMay contract during a sound interval.
  - Usually sound, sometimes unsoundMay not contract while unsound, for example in delirium or drunkenness.
- Disqualified by law section 11
  - Alien enemyBarred while the war lasts.
  - Foreign ruler or diplomatCannot be sued without the Central Government's consent.
  - InsolventCannot deal with property that vests in the receiver.
  - ConvictCapacity is limited during the sentence.

Detailed explanation

Step 1: the two kinds of unsound mind

Unsoundness can be permanent, intermittent or temporary. Section 12 handles all three with one test applied at the moment of contracting.

Usually unsound, sometimes sound. A person with a lucid interval (a period of clear understanding) may contract in that interval. The Act's illustration (a): a patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.
Usually sound, sometimes unsound. delirium or deep intoxication stops capacity while it lasts (illustration (b)).

Example. Ganesh, a patient with a mental illness, has clear weeks between episodes. He sells his scooter to a neighbour during a clear week, with the doctor present to confirm his understanding. The sale can stand. A sale made during an episode cannot.

Step 2: effect of an agreement made while unsound

Section 11 makes such a person incompetent, and section 10 requires competent parties. Indian courts therefore treat the agreement as void. The person who deals with him cannot enforce it.

The court has discretion whether to require the person to restore any benefit he still holds, under section 33(2)(b) of the Specific Relief Act, 1963. Section 33(2)(b) covers an agreement void because the defendant was not competent under section 11.

Step 3: necessaries

Section 68 protects a supplier of necessaries, such as food, clothing or medicine, to a person incapable of contracting. The claim is against his property, not against him personally. It also covers supplies to his wife and children (illustration (b)).

Example. A pharmacist supplies medicines to Sarita, a patient of unsound mind, and to her young children. The pharmacist is reimbursed from Sarita's property, not from Sarita herself.

Step 4: persons disqualified by law

These persons are adults of sound mind but are limited by a specific rule. The rule and its extent differ for each category.

Alien enemy: a national of a country at war with India. Contracts made during the war are barred, and earlier contracts are usually suspended until peace. An alien enemy living in India with the Central Government's permission may sue (section 83 of the Code of Civil Procedure). One living abroad, or in India without permission, may not.
Foreign ruler, ambassador and envoy: they can contract and sue. A foreign ruler cannot be sued in an Indian court without the Central Government's written consent (section 86 of the Code of Civil Procedure). Ambassadors and envoys of foreign States enjoy the same immunity from civil process.
Insolvent: an undischarged insolvent cannot deal with property that has vested in an official receiver or assignee.
Convict: a person serving a prison sentence is treated as unable to contract until the sentence ends. After that, capacity is complete.

Example. An undischarged insolvent, whose plot has vested in the official receiver, agrees to sell that plot without the receiver. The buyer cannot enforce the sale against the plot.

Don't confuse: unsound mind and a weakened mind

An unsound mind removes capacity under section 12. A mind weakened by age or illness may instead support undue influence under section 16(2)(b). The legal results differ.

Point	Unsound mind (section 12)	Weakened mind (section 16(2)(b))
Question	Could he understand the deal and judge its effect?	Did the other party dominate his will and gain an unfair advantage?
Ground	Lack of capacity	Lack of free consent
Effect	Void	Voidable under section 19A

Inside the idea. Hari, delirious with fever, signs away his shop. He could not understand the document. The agreement is void for want of capacity.

Just outside it. Lakshmi, aged 80 and anxious, understands the sale but her doctor pressures her to sell for a fraction of the value. Her capacity is intact. The sale is voidable for undue influence.

Common mistakes

Treating "unsound mind" as a medical diagnosis. Section 12 asks about understanding at the moment of contracting.
Saying a mentally ill person can never contract. A sound interval allows it.
Making the person personally liable for necessaries. Only his property is liable.
Writing that a foreign ruler cannot contract. The limit is immunity from suit without consent.

Apply it

Problem

Mohan, who is seriously ill with delirium, sells his house worth Rs 25 lakh to Prakash for Rs 7 lakh. Mohan's son wants the sale set aside. What is the position?

Issue. Was Mohan competent to contract?

Rule. Under section 12, a person is of sound mind if he can understand the contract and judge its effect on his interests at the time of contracting. A person of unsound mind is not competent (section 11).

Application. Delirium prevented Mohan from understanding the sale. The very low price supports that finding, as in Indar Singh v. Parmeshwardhari Singh.

Conclusion. Mohan lacked capacity, so the sale is void. The court may require Mohan's side to restore any benefit still held, under section 33(2)(b) of the Specific Relief Act.

Leading case laws

Indar Singh v. Parmeshwardhari Singh (1957), Patna High Court, AIR 1957 Pat 491
Facts. Property worth about Rs 25,000 was sold for Rs 7,000. The seller was shown to be a born idiot who could not understand the transaction or judge whether it was in his interest.

Principle. The sale was void for want of capacity under section 12. A person need not be proved a lunatic. It is enough that he cannot understand the deal or judge its effect.

Why it matters. A grossly low price is strong evidence of unsoundness at the time of the contract.

How to write this answer in the exam

5-mark answer

Quote the section 12 test in plain words.
State the lucid-interval rule and the delirium or drunkenness rule.
State the effect: the agreement is void.
Add necessaries under section 68.

10-mark answer

Section 11 and why capacity matters.
Section 12 with illustrations (a) and (b).
Effect and restitution under section 33(2)(b), Specific Relief Act.
Necessaries under section 68 and sections 183 and 184.
Disqualified persons: alien enemy, foreign ruler, insolvent, convict.
Indar Singh v. Parmeshwardhari Singh and a problem example.

Key points to remember

Section 12 tests understanding and rational judgment at the time of contracting.
A usually unsound person may contract in a lucid interval. A usually sound person may not while unsound.
An agreement made while unsound is void.
Necessaries are paid from the incapable person's property (section 68), not by him personally.
Disqualified categories each have their own rule: alien enemy, foreign ruler, insolvent, convict.

Quick self-test

1. What is the test of sound mind in section 12?

Whether, at the time of making the contract, the person can understand it and form a rational judgment about its effect on his interests.

2. Can a person of usually unsound mind ever contract?

Yes, during an interval when he is of sound mind (section 12).

3. Who is liable for necessaries supplied to a person of unsound mind?

His property is liable. He is not personally liable (section 68).